Ex-Telatron owners face liquidation in bankruptcy case

These are file photos of Alfred D. Covatto, at left, and his wife Joyce Covatto, at right. The Covattos are former owners of the now-bankrupt telemarketing company Telatron Marketing Group Inc., based in Erie. CHRISTOPHER MILLETTE/ERIE TIMES-NEWS

A couple who lost their Erie telemarketing business in bankruptcy are at risk of losing their personal assets as well.

Alfred D. Covatto, 73, and his wife, Joyce M. Covatto, 61, filed for Chapter 11 bankruptcy protection in May 2011 -- an option that allowed them to keep their real estate holdings and other assets while they reorganized their debts to pay creditors.

But as their case has gone unresolved in U.S. Bankruptcy Court in Erie, a federal agency wants a judge to convert the bankruptcy to Chapter 7, which would force the Covattos to liquidate their assets to settle their debts, including millions of dollars in unpaid taxes.

The Covattos' business, Telatron Marketing Group Inc., filed for Chapter 11 bankruptcy in 2008. Its assets were sold to another telemarketer in November 2011, but bankruptcy claims against it remain.

They total about $9.4 million, including about $4.7 million in unpaid taxes, most of which are unremitted employee payroll taxes, and tax penalties. None of the creditors in the case will be made whole, according to court records.

The local trustee handling the Telatron case, Erie lawyer John Melaragno, has referred it to the U.S. Trustee's Office for possible criminal charges. The Covattos have said in court records they did nothing wrong. The U.S. Trustee's Office oversees bankruptcy cases.

In their personal bankruptcy case, a conversion to Chapter 7 would force the Covattos to sell their most significant possession -- Telatron's former headquarters, a three-building complex at West 38th Street and Greengarden Boulevard in Erie. The Covattos own that property.

Their other major asset, their house in the 1200 block of St. Mary Drive, in Millcreek Township, is in foreclosure, with a sheriff sale set for March 13. The unpaid mortgage and interest and costs total $763,000, according to court records.

The Covattos have been in negotiations to sell or lease the office buildings as part of their personal Chapter 11 case, in which they face creditors' claims totaling about $5.4 million -- including more than $1.6 million in unpaid taxes and penalties. The asking price for all three buildings is $2.7 million.

A conversion to Chapter 7 would require the Covattos to sell the three office buildings and any other assets the court determines must be liquidated. Chief U.S. Bankruptcy Judge Thomas P. Agresti set a hearing for Tuesday on whether he should switch the case to Chapter 7.

The conversion request came from the U.S. Trustee's Office in Pittsburgh, whose jurisdiction includes Erie. The U.S. trustee in Pittsburgh is Roberta DeAngelis, and a trial lawyer in her office, Joseph Fornari Jr., is handling the Covatto case.

Fornari asked Agresti to convert the case to Chapter 7 for one main reason: He said in court records that the Covattos failed to file three required financial reports, which Fornari said prevented the U.S. Trustee's Office from evaluating a Chapter 11 plan the Covattos submitted in July.

The U.S. Trustee's Office asked Agresti to reject a key part of the plan -- known as a disclosure statement -- as unworkable.

The Covattos will have to submit another Chapter 11 disclosure statement -- if Agresti decides not to convert the case to Chapter 7.

The Covattos' lawyer, Guy Fustine, of Erie, is arguing against conversion. He said in court records that, as of Jan. 2, he had filed all the required financial reports, and that the Covattos continue to have "viable opportunities" to sell or lease the former Telatron properties.

Agresti could appoint a local trustee, rather than the Covattos, to liquidate their assets if he decides to convert the bankruptcy to Chapter 7. He mentioned that possibility in a Jan. 10 court order.

"The court," Agresti wrote, "has significant doubt that it would be in the best interest of the creditors to have liquidation carried out by the debtors given the history of delay and failed expectations in the case."